Unfortunately, debt can easily get out of control, and start to become overwhelming. When this happens, you may start getting calls for debt collectors and you may start feeling as though things are out of your control. At these times, it can be helpful to begin a debt management program.

Main types of debt management programs

There are two main types of debt management programs: debt settlement and debt consolidation.

Debt settlement

Sometimes, debt settlement is also referred to as debt negotiation. In this sort of debt management program, someone else intervenes on your behalf to work with your creditors to forgive some of your debt. Here is how it works:

1. You contact the debt settlement agency.
2. They arrange to work with the creditors.
3. You stop paying the creditors and make payments to a separate interest bearing account, usually a savings account.
4. The debt settlement company negotiates with your creditors until they agree to accept a certain amount of the debt you owe.
5. The creditors are paid using money from the account you have been paying money into.

The reason that this method can work is due to the fact that by the time most people reach the point that they are in need of a debt management solution, they have already more than paid back the original amount borrowed in interest fees. (This is especially true of credit card debt.) However, it is important to note that debt settlement can lead to a much lower credit score, since there will be a period of time in which you are not paying on your bills.

Debt consolidation

Debt consolidation is a little different from debt settlement. In this method of debt management, you take all of your debts and gather them in one place. This way, you make only one payment at each month, and that covers all of the debt that you have. There are two main ways that debt consolidation works:

1. A third party debt consolidation service gathers all of your debt and payment information. In this scenario, the service gets all the information it needs in order to make monthly payments on your behalf. You send one check each month that covers all of the payments, and the third party disburses the payments to your creditors. In many cases, the third party negotiates lower interest rates on your debt, and comes up with a payment plan that is doable for your financial situation.
2. One of the most common methods of debt consolidation is through a loan. When you take out a debt consolidation loan (a home equity loan is very common for this), you pay off all of your small loans in exchange for making one payment each month on one bigger loan. However, the interest you pay is often smaller than if you paid on several smaller loans, and if you use a home equity loan, it is possible that you can deduct some of the interest from your taxes. It is important to carefully consider before choosing to secure your consumer debt with a home equity loan. You do not want to lose your home should something go awry.

Creating your own debt management plan

For many people, these debt management options are very helpful. They may need someone else's guidance and help. However, it is important to be wary of these debt management plans. You should make sure that the company you choose is reputable, and check the costs. Third party arrangements often come with fees – some of them quite hefty – that can be just as bad as paying the interest charges and other fees the debt exacts.

It is possible to create your own debt management plan, but you have to have the proper discipline. If you choose one of your credit cards to pay off first, and then concentrate on paying $100 or $200 or whatever you can afford extra on it each month, you can reduce your debt faster. However, you still have to be able to pay the minimums on your other debts while you are doing this. And it can be discouraging at times.

No matter which route you go with debt management, the important thing is to choose a method that will best help you get out of debt as quickly as possible.